Sterlite Tech is a value buy

The Indian telecom sector has seen rapid growth during the last decade along with strong consumer demand. The liberal and reformist policies of the previous and present governments have been instrumental in providing an easy market access under a proactive regulatory framework to ensure availability of telecom services to consumers at affordable prices. India is currently the world’s second largest telecom market, with the Indian mobile economy growing at a scorching pace. As per research reports, the telecom sector is expected to create millions of direct and indirect jobs in the country over the next five years. Employment opportunities are expected to get created in rural areas on the back of rapid increase in smartphone sales and rising internet usage. The mobile industry is expected to create a total economic value of over USD 300 billion in the next five years and generate over three million direct and indirect jobs during this period. India’s smartphone market has grown by over 14% and this rise in mobile phone penetration should add 500 million new internet users in the country over the next five years, thus creating fresh opportunities for the new business. With all these positives, Sterlite Technologies is a company worth looking at from this unfolding telecom revolution.

Sterlite Tech Q2 FY19 performance has shown sustained growth backed by a strong order book, with the tech firm posting an 84% jump in consolidated net profit of Rs 131 crore, as against Rs 71 crore for the same period a year ago. Revenue from operations increased by 40% to Rs 1,084 crore from Rs 780 crore in the year ago period. This sustained growth has been a result of continuous unique capabilities, focusing on design by building and managing large scale data networks for global communication service providers, internet content companies and citizen broadband networks. It is the only company in the world with expertise in photonics and glass science, which is then integrated into programmed network rollouts and designs. This gives a unique advantage to the company to offer solutions for hyper scale networks for applications such as 5G, FTT, defence sectors and data centres. The order book has swelled in the year 2018, with the Indian Navy awarding a Rs 3,500 crore contract to Sterlite Technologies for designing, building and managing its communication network. The future looks extremely bright for the company, as the optical fibre cable segment, which is currently witnessing full capacity utilisation, should contribute substantially to its bottom line by 2020. With a strong order book of over Rs 6,000 crore, there looks a healthy revenue visibility for the next two years. Given the robust growth potential (top line and earnings CAGR of 35% and 38%, respectively, for the FY 2019-20 period), the Sterlite Technologies stock currently quoting at Rs 285 is a value buy for a potential target price of Rs 400 in the next 18 months.